Boston Scientific and the Road to Ruin
Former executives describe what ensued as an all-out testosterone fest. They claim that Boston Scientific’s top brass became so obsessed with beating J&J that they failed to heed warnings that Guidant was a toxic asset. In the end, Boston Scientific spent $27 billion on a deeply troubled firm facing a mountain of messy litigation for alleged corruption and malfeasance.
In June 2006, less than two months after Boston Scientific closed the deal, it had to recall more of Guidant’s faulty defibrillators. The following April brought yet another recall. Boston Scientific had to shell out $296 million to the federal government after Guidant pleaded guilty to criminal charges related to its sale of defibrillators with deadly defects. The company has paid the feds $22 million more to settle charges that Guidant sales representatives gave kickbacks to doctors who bought defibrillators from the company. Boston Scientific has also spent $234 million to date to settle more than 8,000 claims from patients with Guidant devices. Two class actions and 37 more individual lawsuits await adjudication or settlement. In January of this year, the Department of Justice filed a civil lawsuit against Boston Scientific related to the problems with Guidant.
RANDEL RICHNER, the former vice president of global government affairs at Boston Scientific, says the company’s problems through the years have only been exacerbated by a “Wild West attitude” toward the regulatory agencies. “It was hard to convince the upper management that there needed to be a more proactive way to deal with the government,” Richner says. “We had the image of pushing the envelope, of snubbing our nose at authority. We were like a rebellious teenager. That attitude made us successful, but we needed to make a cultural shift when it came to working with agencies that were critical to our success.”
The FDA did not take kindly to this rebellious teenager. In early 2006, it issued a warning letter informing Boston Scientific that until the company addressed its quality-control concerns, the agency would not entertain new submissions for some of Boston’s products.
Jim Tobin, the man who’d succeeded Nicholas as CEO, spent a couple of years trying to fix this mess. Then, in 2009, the company unexpectedly announced his resignation, and Ray Elliott replaced him in July of that year. Elliott had made a name for himself by keeping investors rich and happy during his time as CEO of the orthopedic device maker Zimmer Holdings. He’d also been on Boston Scientific’s board. Elliott has said that he agreed to take the helm of Boston Scientific to help out “old friend” Pete Nicholas. The compensation didn’t hurt, either: Elliott earned $33.4 million in cash, stock, and options, making him the second-highest-paid CEO in America that year, according to Forbes.